The cost of borrowing money or the return to savers.
The use of interest rates to help control the economy is known as monetary policy.
The Bank of England changes interest rates in order to meet a government inflation target of 2% (minus or plus 1% either side)
August 2016 the Bank of England cuts interest rates to 0.25%. Details here.
What are they worried about?
The rate of interest is a cost to a business.
Changing interest rates has an impact on investment decisions.
If interest rates rise investment is very likely to fall
because the costs of loans will rise.
Click on the picture:
Lower consumer demand in the economy makes investment less attractive.
Why rising interest rates influence consumer demand:
Consumer face higher payments for loans and credit card bills.
Mortgage payments will increase.
(Fixed rate repayments are not 'fixed' forever)
At what stage of the business cycle do you think the Bank of England might raise interest rates?
